PROFITABILITY

Battling the Recession: Bottom-Line Client Development Tips

John Wanamaker, the 19th century merchant widely viewed as the father of the department store and modern advertising, uttered this lament: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half!” Unfortunately, this sentiment is often dead-on when it comes to law firm marketing and business development, too.

In the previous issue, we began a series of columns on how to survive the ongoing recession, with a focus on tips for shoring up your bottom line across the core areas of law practice. For this installment, let’s concentrate on client development ideas, from allocating marketing dollars to putting incentives in your compensation system and more—all filtered through the finance lens, of course.

Shape Up Your Marketing Budget

In hard times, a sound budget can make the difference between life and death for a law practice. At the same time, when it becomes tougher to make ends meet, many lawyers jump to the conclusion that marketing expenses are a quick and easy place to cut—but beware this impulse. After all, those expenditures are your lifeline to new business, so why would you want to cut your lifeline?

Marketing activities should take place constantly and automatically, like breathing. The idea is to generate a steady stream of potential new cases, from both existing and new clients, so that you have the option of picking the best work rather than being stuck having to take whatever trickles in the door.

However, if your spending is ad hoc and you don’t know exactly how much you will spend in a given year—or where you should spend it—now is the time to “right-size” your budget for marketing efforts. That means instead of grabbing the shears and pointing them willy-nilly at your marketing expenses, you’ll want to determine which of your activities truly result in value for the dollars spent.

Often firms don’t really understand where their business comes from, making it much harder to bring in new business or understand the return on investment (ROI) of their marketing expenditures. But actually, it’s not all that complicated.

First, if you haven’t already done so, you need to establish intake procedures to ensure that all clients (even existing ones) are asked how they found out about your firm and why they selected it for their particular matter. Then, at the end of each quarter going forward, review the information and the picture will come into focus.

Here’s some general industry data to guide your budgeting, too. How Clients Buy: 2009 Benchmark Report on Professional Services Marketing and Selling from the Client Perspective , from RainToday.com, indicates that referrals from colleagues and from other service providers—at 79 and 75 percent, respectively—are the top two ways that clients are likely to identify and learn more about professional services providers. Internet searches fall into the third tier of methods, at 55 percent, and print and radio ads are even less likely to be sources of service providers for most higher-end clients. Thus, the chances are probably quite good that the vast majority of your clients don’t come through traditional “advertising” efforts.

By knowing where your clients really come from, you’ll be able to eliminate the expenditures that aren’t bringing you business and redirect those dollars to sources that will provide a better ROI. And since studies show that it costs a lot less to keep existing clients than to draw in new ones, and that totally satisfied clients are much more loyal than even mostly satisfied ones, you may want to direct some of your marketing budget toward client satisfaction, too. This can range from communications tools such as a client intranet to simply spending a little nonbillable time building a better relationship with an existing client.

Insist on Personal Business Development Plans

You won’t get where you’re going if you don’t decide on a destination and chart a course. A personal business development plan is a lawyer’s road map to success, and every lawyer in your firm should craft one. Remember, success is ultimately about setting goals and measuring progress toward them—and what doesn’t get measured doesn’t get done.

Here are the types of things each plan should address: How many and what kind of clients do you wish to have in one year? In three years, and in five years? Where will you find them? How will you ethically reach them? How much time and money will you invest in personal branding? Will you write for targeted publications? Join industry associations? Seek speaking engagements? Create a blog or use other Web techniques, like building an online profile through networking sites such as Facebook, LinkedIn, Martindale- Hubbell Connected or Legal OnRamp?

When you budget time and money for such activities, you’ll reinforce specific goals and strategies for reaching those goals. You can then measure the results of your efforts, by tracking the number and type of clients in your chosen areas of practice and how they change over time. Then, by asking how each client came to you, you’ll learn more about what’s working—and what isn’t—creating an information loop that provides meaningful feedback on your efforts.

Rethink Your Compensation System

Does your compensation system reward the kind of business development efforts that ensure a firm’s short- and long-term viability? The 2007Juris Law Firm Economic Survey reported that the three most important factors in partner compensation were working attorney fees received (30 percent); origination credit (29 percent); and billable hours (13 percent).

Interestingly, the survey found that cross-selling services wasn’t even taken into account in terms of partner compensation. But since existing clients are a firm’s best sources of new business, why wouldn’t a firm reward its lawyers for cross-selling, especially in a rough economy? This is an excellent time to think about adding incentives to your system to encourage all lawyers to bring new business to other lawyers in the firm.

Open your mind up to other, more out-of-the-box options, too. Here’s an example. DLA Piper recently eliminated nonequity partners. This was a smart move because it allowed the firm to raise additional capital from the buy-in of the partners who went from nonequity to equity status. The firm could then use the money raised for either debt reduction or other needed spending to make the firm more profitable. Second, it reduced salary outlay by shifting these individuals to draws based on income. (Salaries, you’ll remember, have to be paid, regardless of income.) Third, the move leads all partners to be more highly focused on business development, since their compensation and the value of their investment in the firm depend on it. Finally, by increasing the firm’s equity, it improved the firm’s debt-to-equity ratio, putting the firm in a better position to borrow funds if needed. Profits per partner will likely be adversely affected, at least until the new partners are up to speed, but that is hardly the only measure of success.

Look for New Opportunities

Downtimes can actually be good times to launch into new areas, so why not scout out emerging markets to make up for the loss of other types of business? Consider this: Since established businesses often abandon promising growth opportunities too quickly when their cash gets tight, it leaves start-up businesses the opportunity to step in and fill the void. Oracle and Microsoft were both born in difficult economic times. Similarly, there are likely many promising start-ups out there looking for the services of a good law firm right now. (See The Economist ’s Nov. 20, 2008, issue “All You Need Is Cash.”)

And there are always established industry sectors that do well in bad times, so look at how you can attract new clients from those sectors as well—especially for those lawyers whose practice areas are more affected by the drop in the economy.

Also, can you or your clients benefit from the stimulus packages that are being considered or rolled out? Certainly, the government will be spending a large amount in coming months to minimize the effects of the current recession. Look for ways that you can grab a slice of the pie yourself or, alternatively, assist clients who could benefit from these programs and increase the work that you are doing as a direct result.

Choose a Top Strategy

Respondents to the Juris Law Firm Economic Survey indicated that the most effective strategies in enhancing firm profitability were increasing fees (41 percent); marketing and business development (23 percent); and improved efficiency (21 percent). Since it’s extremely difficult to increase fees in an economy like the current one, marketing and business development almost automatically moves into the number one spot.

Knowing that, you then know that you need to address the following: Have you allocated time, money and personnel to your client development strategies? Are you actively setting goals, coaching junior members of the firm, providing the right incentives and measuring your results? Most importantly, unlike Mr. Wanamaker, can you tell which half of your marketing expenses are producing results and which half are wasted?

About the Authors

David J. Bilinsky is a practice management consultant who focuses on enhancing law firm strategy, finance and technology initiatives. He blogs at ThoughtfulLaw.com.

Laura A. Calloway is Director of the Alabama State Bar’s Practice Management Assistance Program and Chair of ABA TECHSHOW® 2009.